economics income elasticity of demand problem

1.  The income elasticity of demand for your firm’s product is estimated to be 0.75. A recent report in The Wall Street Journal says that national income is expected to decline by 3 percent this year.

  i.  What should you do with your stock of inventories?

  ii.  What do you expect to happen to your sales?

  iii.  How would you answer parts a and b if you expected a 5 percent increase in income instead of a decrease?

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